India's government reaches out to opposition for support on tax bill

By Manoj Kumar

By Manoj Kumar

Photo:

By Manoj Kumar

NEW DELHI (Reuters) - India's government held talks with its main political rival to settle differences over tax reform legislation on Friday, and sources in the two groups with direct knowledge of the matter said a consensus appeared possible in a parliament session starting next week.

The proposed reform, India's biggest revenue shake-up since independence in 1947, seeks to replace a slew of federal taxes and levies in 29 states, transforming the nation of 1.2 billion people into a customs union.

Prime Minister Narendra Modi's party, which lacks a majority in the upper house of parliament, has reached out to the Congress party to end its opposition to the Goods and Services Tax bill which has stalled in parliament for years.

Finance Minister Arun Jaitley told reporters the government was trying to resolve differences with the Congress party, which include its demands to cap the tax rate at around 18 percent in the proposed bill.

The government has said it does not want to be bound to a particular rate written into the law as any future changes would require a further amendment of the constitution.

"We are trying to build a consensus," Jaitley said after meeting top Congress leaders ahead of the monsoon session of parliament beginning on Monday, where the government plans to discuss the bill.

Under pressure to deliver on economic growth and jobs, the government is hoping that the tax reform legislation would make the country an easier place to do business and fuel investment.

The GST bill could add 0.8 percentage point to India's economic growth in 3-5 years, HSBC said in a research note.

Congress leader Anand Sharma said discussions had been held with the finance minister and parliament affairs minister on the bill but declined to go into specifics.

A source in the Congress party, however, said the party was ready to support the bill if the government committed to capping the tax rate later even if it did not make it part of the law immediately.

Despite deep-seated political differences, the Congress party gave the government its support to a landmark bankruptcy bill at the last session.